“Adjust Your Whole Life to Being Successful” – Scott Raybin

I started off as a stockbroker working at Smith Barney back in 1993. I went into private equity in 1998, raising capital. In 1999, I worked at one of the largest day-trading firms in the country. I saw that there was a lot of money in trading. I raised my own private equity and started my own company with a partner of mine, building mathematical trading algorithms. We raised several million dollars and then in 2005, began the structure of a hedge fund — we were specifically going into a quantitative hedge fund — and here we are in 2007.

If you couldn’t be in financial services, what you would be doing?

I really don’t know. I was in the Academy of Finance in high school, looking at stocks, so I’ve been interested in this for over 20 years. This is all I know, probably all I will ever do.

Is your story typical?

Most people who are in hedge funds have been in Finance for the last 10 or 15 years. There are so many components to a hedge fund. You have to know how to raise capital; you have to know compliance; and then you have to understand trading. I’ve done all three of those things, and that’s why it got in to me to be the general partner of my hedge fund.

Tell us about your team.

Out of ten people, four are in management, two are traders, and four are developers.

It started off with my partner, Fred and I. With any successful hedge fund there has to be two people, somebody who trades and somebody who runs the business. And then, eventually, the third person who raises the capital.

We found all of our employees through our network of people. Very few times have I gone out into the market and put an ad out there. I have done it; I haven’t found too many diamonds yet, though. I don’t use executive recruiters at all.

What about growing the firm?

Because we’re a quantitative hedge fund, I don’t need traders. I need operators with some type of computer background. That’s the beauty of having a quantitative business. I can grow vertically without having to increase my staff.

If anything, I’m going to increase my staffing in raising capital—that’s it. I’m always raising money. You must. That is the lifeblood of your business. Any fund that is not doing that is really making a very egregious error.

Fund-raising, also, is leveraging your network.

It starts within the network, but people are learning. When you’re a small start-up firm — I just read a statistic that 80 percent of all hedge funds are under $50 million — you have to be resourceful. For example, I don’t limit myself to being a fund; I have managed accounts. I go to broker deals, I try to set up IB agreements where I’ll be an authorized trader. You have to have a staff to do that because you can’t cold call — you’re not allowed to — so you have to be resourceful.

I should have started raising money a lot earlier. I should have started back three, four years ago. I wanted everything to be perfect first, but it is never all going to be perfect.

If you look for somebody new, how many people at the fund would they talk to during the hiring process?

Two. They would talk to one of my marketing people, probably, because I have them organize teams. I would have the final approval. My marketing people know what the culture is, so if they really like someone, then nine times out of ten, I will too.

Do you have a favorite interview question?

No, I really don’t. It’s more of a conversation. I treat people like they’re people. I don’t want them to be under great pressure to impress me with a specific answer. It’s not what they answer; it’s how they answer. How comfortable are they around me? I’m pretty direct. I want to see how they handle just talking to somebody.

What characterizes the culture of your firm?

Loyalty and camaraderie. That’s why finding people through a network means more to me than just going out and bringing somebody in.

How does that play out in the day-to-day?

There are times where the results might not be what we want them to be. That’s the nature of this business. The difference is someone who supports us or someone who criticizes us. No one needs to criticize me more than myself. I know what the numbers are. I want to make sure my team is going to support me no matter what, in the good times and the bad.

We work in the same office, we’re here at various times, and we have staff meetings two to three times a week at various times. People have titles because in the outside world people need them, but titles create a certain hierarchy. Yes, of course, there is always one person who has to make the final decision, but if you treat people like we’re all equal, people appreciate it, and they have a vested interest. That’s why they’re loyal.

The culture comes from myself and my partner. Integrity to who we are far supersedes any assets that I try to acquire. I’ve given clients back their money because I don’t like their attitude.

Name a major obstacle and a major opportunity that exist today that did not exist a few years ago.

Well, the biggest obstacle also is the best opportunity. I believe that’s transparency. I put everything on the table and tell people what they’re investing in. This is not a guarantee, and I really put it up front that there is a possibility of losing money.

I think a lot of funds are not telling clients the truth about where they’re investing and how much losses they have. Lying is what gets people in trouble. We’re all adults; it is what it is. Not everything is 100 percent in this business, and if someone doesn’t want to accept that risk, I’d rather put everything out there and let them make the final decision.

And that makes transparency an opportunity.

Absolutely. I think it’s refreshing that people know what the real situation is.

How much contact do you have with people at other hedge funds?

Zero. I have enough on my plate. Should I probably be talking to more people? I’m sure that the information they give me could help me. I don’t want to dismiss it, but I just don’t have the time for it.

When you’re in the hundreds of millions of dollars, then maybe it’s different, but I’m not there yet. You need several years of track record, and you need a lot of money under management, and I’m building that. In two or three years, yeah, I probably will be at that stage.

Anything else to add?

It’s hard having your own business. It’s a massive sacrifice; you have to really adjust your whole life to being successful. Financial success is elusive and hard to come by. That’s why a very small percentage of people in the population really have it. So for people who want financial success — really a lot of money — be prepared to put a lot of time and a lot of sacrifice in. It’s going to take a lot longer than you even remotely think it is.